Sales Forecasting Tips for Small Business Owners

Sales forecasting doesn’t have to be guess work. Sure, there are some aspects that are based on making assumptions. However, those same assumptions can be used to narrow down the likelihood of a sale and help make the forecast a more accurate one. For small business owners looking to improve their forecasting accuracy, the key is to use those same assumptions and combine them with a simple formula called PERT, or otherwise known as the Project Evaluation and Review Technique. 

Forecasting Sales for an Entire Territory

When a sales professional does his or her sales forecast, they often ask themselves three basic questions: 1) What is the best case scenario? 2) What is the most likely scenario? 3) What is the worst case scenario? In the past, we’ve looked at how PERT can be used by a sales professional to come up with a more accurate estimate of their potential sales to a given customer. In that sense, we approached it from the mindset of analyzing the business at an individual account. Today, we’ll approach it from the mindset of the future sales of a given product to an entire sales territory.

In the following example, a small business owner has a product that is used by every major customer in the sales person’s territory. Every customer within the territory could use a maximum of 10 of these products a quarter.

There are 25 customers in this particular sales person’s territory. The small business owner has a gross profit on the product of $15.00. To provide a more accurate sales forecast for the quarter, the sales person would use those aforementioned three questions and use the PERT calculation. The three questions and the PERT calculation are below.

• Best Case Scenario = A
• Most Likely Scenario = B
• Worst Case Scenario = C    

PERT Calculation = {1(A) + 4(B) + 1(C)} / 6  

Total potential sales in territory for 25 customers a quarter = 250 units

Total potential gross profit in territory for all 25 customers a quarter = 250 units x $15.00 = $3,750.00

Variables:

• Best Case Scenario = 250 units sold
• Most Likely Scenario = 175 units sold
• Worst Case Scenario = 125 units sold

Pert Calculation:

• PERT Calculation = {1(250) + 4(175) + 1(125)}/6
• PERT Calculation = {250 + 700 + 125}/6
• PERT Calculation = 1075/6
• PERT Calculation = 180 Units or $2700.00 Gross Profit 

In this case, we’ve looked at how a sales professional could use the PERT calculation to narrow down a more realistic sales volume of a given product. If the small business owner had the sales team use the same approach for all products, it could help establish a more realistic sales forecast. Here is another example of what a forecast might look like for a given territory. In this case, the calculation has been used to provide an estimate on the number of units sold. 

The above table is from the article: Sample Sales Territory Forecasting Excel Sheet for Small Businesses

The approach is to go product by product, and use the calculation to narrow down the most likely outcome. However, PERT is but one part of improving forecast accuracy for small business owners. It's a solution that makes sense given the high costs of forecasting software, but it isn't the only method to rely upon. Instead, there other other factors to consider. What are these other factors? 

In order to answer this question, think of the impact of seasonality on forecasts. Think about the impact of historical trends, different business cycles and the importance of tracking absolute errors between forecasted sales and actual sales. In the end, PERT is one part of the equation, but you can use other strategies to improve how your team comes up with its forecast. The video below explains several tips you can use to improve your accuracy. It is taken from the post: How Do We Improve Our Sales Forecast Accuracy?